Archived site. This is an independent restoration of material previously published on arb-maker.com. It is not affiliated with, endorsed by, or operated by any organisation named on these pages, and the content is historical — it is not current information. About this archive

ArbMaker

THE tool-set for relative value pairs traders

A product of Sparrow Holdings, LLC — established 2004

HomeArbMaker News!How long does cointegration last?

How long does cointegration last?

how longThe correct answer is ‘so long as the conditions that underwrote the relationship in the first place continue to prevail’.

Not entirely satisfying but cointegration is a linear association between multiple time series and most prone to break when a shock occurs. Shocks (excluding calendar events such as earnings announcements) tend to be unheralded.

However, for entertainment value the question can be answered with a high degree of statistical confidence. This Google Book preview link to Professor John D. Barrow’s entertaining book “100 Essential Things You Didn’t Know You Didn’t Know” explains.

The moral, maybe, is that statistical confidence is not the only consideration to take account of in decision-making!